Dive Overview:
Increased regulatory oversight could slow innovation, but additional guardrails are necessary. Banking Fintech Partnerships are becoming more complex. Fintech Analysts said Tuesday they will address more compliance responsibilities. Finovate The fall conference was held in New York City. “Many of the enforcement actions we’ve seen in the last year or two are the result of risk management and compliance concerns not being addressed up front,” Donna Murphy, deputy superintendent for compliance and risk policy at the Office of the Comptroller of the Currency, said Tuesday. “That kind of measured, cautious approach to innovation is exactly what we expect from banks. … It’s Fintech What countries aren’t giving it the same consideration? Probably, but that’s OK.” There is growing interest from regulators in the U.S. and EU. Banking Fintech Yossi Leon, chief technology officer at FIA Tech and an adjunct professor at New York University, said the partnership would bring new costs and affect “build versus buy” considerations. [regulation] “It slows down innovation because it’s expensive to get compliance in place and to hire the right teams to make sure you’re compliant in different regions,” he said. “It makes it more expensive to innovate, so it makes buying more expensive.”
Dive Insights:
Bank-fintech partnerships have come under increased regulatory scrutiny over the past year, with the Federal Deposit Insurance Corp., the OCC and the Federal Reserve issuing consent orders to banks that partner with fintechs. In the wake of the Synapse bankruptcy, in which more than 100,000 customers were locked out of their partner bank accounts in a dispute over user balances, the FDIC plans to propose requiring banks to keep a ledger of accounts opened “for the benefit of” third-party fintechs, Bloomberg Law reported last week.
Murphy rejected claims that the inter-agency guidelines on third-party relationships, published in June 2023, were more prescriptive than previous frameworks the regulator had put in place.
“Banks are still responsible for complying with all laws and regulations,” she says. “Our expectations as supervisors are pretty detailed, but they’re not prescriptive. It doesn’t say, ‘You have to do this particular thing like this.'”
Her comments appear to contradict FDIC Commissioner Jonathan McKernan, who said in July that there is room for activity-specific advice under current guidelines.
Murphy said the latest interagency guidance is a “moderate update” from previous guidance that was in effect for 10 years. The new guidance reflects the growing complexity of partnerships between banks and fintechs, he said.
“[Bank-fintech partnership] “The contracts can get more complicated, with third parties not just providing specific services but also compliance,” she said, which increases the risks.
Christine Lee, a partner in investment management at law firm Morgan Lewis & Bockius, said regulators are asking more questions about how banks determine third-party risk, along with governance considerations.
Leong said increased scrutiny of bank-fintech partnerships could strengthen the business case for artificial intelligence-based compliance platforms.
